Compute total asset turnover.
Understand the Problem
The question is asking to compute the total asset turnover for Dundee Company using the provided financial data. The total asset turnover is calculated using net sales as the numerator and average total assets as the denominator.
Answer
The total asset turnover is approximately $0.85$.
Answer for screen readers
The total asset turnover for Dundee Company is approximately $0.85$.
Steps to Solve
-
Identify the Net Sales Net sales for Dundee Company is given as $88,400.
-
Calculate Average Total Assets Average total assets can be found using the formula: $$ \text{Average Total Assets} = \frac{\text{Beginning Total Assets} + \text{Ending Total Assets}}{2} $$
Plugging in the values: $$ \text{Average Total Assets} = \frac{119,000 + 89,000}{2} = \frac{208,000}{2} = 104,000 $$
- Calculate Total Asset Turnover Using the total asset turnover formula: $$ \text{Total Asset Turnover} = \frac{\text{Net Sales}}{\text{Average Total Assets}} $$
Now substituting the known values: $$ \text{Total Asset Turnover} = \frac{88,400}{104,000} $$
- Perform the Division Carrying out the final calculation: $$ \text{Total Asset Turnover} \approx 0.8492 $$
The total asset turnover for Dundee Company is approximately $0.85$.
More Information
Total asset turnover measures how efficiently a company uses its assets to generate sales. A higher ratio indicates better efficiency. In this case, Dundee Company can generate about $0.85 in sales for every dollar of assets it employs.
Tips
- Not averaging the total assets correctly; ensure both beginning and ending assets are included in the calculation.
- Confusing net sales with cost of goods sold; always use net sales for turnover calculations.
AI-generated content may contain errors. Please verify critical information
